Last week I ran a piece looking at how good the AAII sentiment survey is as a contrarian indicator. In the post I pointed out that a problem with sentiment surveys is that we are conditioned to try to be bearish when other people are bullish, and therefore there is a circular reference error built into most sentiment surveys (i.e. if everyone is bearish because everyone is bullish, is everyone bearish or bullish).
In an attempt to strip some of this noise from the data, below is the AAII data presented as one year rolling averages. I thought that maybe this would give a less biased view of structural changes in sentiment that might be more informative about long term trends. The rolling averages suggest that the recent bull market hasn’t turned bears into bulls as much as it has turned bears into “neutrals.”
For comparison, a chart of the weekly AAII data can be found here.